Dollar posts April loss of 1% vs. yen, 1.2% vs. pound

It would take ‘economic hurricane’ for Fed to change tapering pace

By

SaumyaVaishampayan

NEW YORK (MarketWatch) — The dollar fell broadly on Wednesday after data showed the U.S. economy barely grew in the first quarter, in part due to harsh winter weather, suggesting that the Federal Reserve could be inclined to keep interest rates low well after the end of its stimulative bond purchases.

The dollar
USDJPY, -0.20%
fell to ¥102.22 from ¥102.63 late Tuesday. For the month, the dollar has lost 1% against the yen.

The Fed on Wednesday cut its monthly bond purchases by another $10 billion for the fourth meeting in a row and made no change to its forward guidance on interest rates, as expected. The Fed’s statement noted the recent pick up in economic growth and said the housing-sector recovery was still slow.

The Fed statement is “affirmation that the Fed is in a very comfortable place in its tapering process,” said Eric Green, global head of rates, foreign-exchange and commodity research at TD Securities.

Fed officials’ views on the economy remain intact, he added. “It would probably take an economic hurricane for them to alter the pace of tapering,” said Green.

The broad-based dollar strength forecast by many analysts going into 2014 hasn’t yet materialized, even as the Fed continues to reduce its asset purchases. Indeed, the U.S. currency has posted losses against most of its major rivals this year, including a nearly 3% fall against the yen. That’s partly because U.S. yields have been stuck in a range as investors figure out when the Fed could begin to hike interest rates, which would make U.S. assets more attractive. The Fed has maintained that it holds rates low for a “considerable time” after the end of its bond purchases.

Another inhibitor of the dollar rally is that with so many investors positioned for a rise in the U.S. dollar, it takes even stronger economic data to surprise to the upside, according to analysts at Goldman Sachs.

“The strong dollar regime that we talk about is on hold,” said Green.

The ICE dollar index
DXY, -0.30%
a measure of the greenback’s strength against six rivals, fell to 79.522 from 79.814 late Tuesday, for a monthly loss of 0.73%. The WSJ Dollar Index
BUXX, -0.15%
which pits the dollar against a wider basket of rivals, fell to 72.85 from 73.08.

The first-quarter GDP data were disappointing largely due to the winter weather, said Paul Ashworth, chief U.S. economist at Capital Economics, in a note. He said he expects second-quarter economic growth to pick up to 3.5% as the economy shakes off the weather’s impact.

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The private sector posts the strongest jobs growth in five months.

The British pound
GBPUSD, +0.1346%
rose to $1.6871 from $1.6829 late Tuesday, boosting its monthly gain to 1.2% against the greenback.

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